NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the implied 'A+' long-term rating on the $61 million outstanding commercial paper (CP) notes of the Golden Gate Bridge Highway and Transportation District, CA (the District). The District has no outstanding long-term debt, with no borrowings expected.
The Rating Outlook is Stable.
KEY RATING DRIVERS:
Mature Bridge Traffic Subsidizes Transit Operations: This unique historic bridge which has a stable traffic base has experienced modest traffic declines through recent economic cycles. Significant cross subsidy is required by the transit operation from the bridge operation. In addition, operating grants from federal, state, and local governments have been used to cover costs. The single-facility risk is embedded in the nature of the asset.
Demonstrated Rate Making Flexibility:
The Golden Gate Bridge's critical role in serving the region's transportation needs and its mature traffic base provide significant rate-making flexibility as was demonstrated in previous toll increases. Management has been proactive in increasing ferry and bus fares to address projected deficits. The District recently moved to all-electronic tolling on March 27, 2013, with no significant issues or problems to report thus far.
Weak Debt Structure:
The District pays interest only on the CP notes, which are continually rolled over. It is unclear at this time when the District will ultimately amortize the debt. The obligation to repay the CP notes is essentially a promise to pay. There is no waterfall for the payment of the CP notes and therefore no requirement for the monthly debt service sinking fund payments common in revenue bond transactions.
Low Leverage Produces Strong Financial Metrics: Considerably low debt relative to available resources with a net debt-to-cash flow available for debt service (CFADS) ratio of (5.1). District has high liquidity, nearly 450 days cash on hand in fiscal 2012, and extremely high coverage with fiscal 2011 debt service coverage ratio (DSCR) of 199x which reflects the interest-only nature of the CP notes.
Considerable On-going Capital Investment Required:
The District requires continual capital expenditures to maintain the system with a 10-year capital plan of $1.2 billion with the majority ($730.8 million) for bridge related capital expenditures. Approximately 80% of capital expenditures are expected to be funded from government grants, which is consistent with past practice.
Fitch currently maintains an 'F1+' short-term rating on the CP notes, which reflects the District's own financial resources and market access as well as a liquidity facility provided by JPMorgan Chase Bank, N.A. (rated 'A+/F1+' by Fitch) in the form of a line of credit. The line of credit expires on June 30, 2014. As of fiscal year end 2012 (ended June 30), the District held $188 million in unrestricted cash and investments.
--Failure to adjust tolls and control expenses in a manner sufficient to maintain healthy financial ratios consistent with past performance;
--Significant loss of traffic as result of economic factors or a one-time event such as an earthquake or terrorist attack.
The notes are secured by operating revenue and local operating assistance net of operation and maintenance expenses and by the line of credit from JP Morgan Chase Bank NA.
The District implemented an all-electronic tolling system in March 2013 with no significant issues experienced to date. Fitch will continue to monitor for any developments with respect to electronic tolling. Bridge tolls are the majority of the District's revenue, and serve to subsidize the loss-making operations of the transit system. In the absence of surplus bridge revenues and government grants, fare revenues would be insufficient to pay for transit operations. The magnitude of the internal cross-subsidy is demonstrated by the District's 2012 financial results, wherein bridge tolls produced 69% of operating revenue. The transit system, meanwhile, produced 27% of operating revenue and nearly 60% of the District's overall expenses. Operating grant assistance over the past six years has averaged $26 million, demonstrating the District's reliance on external assistance.
The District continues to maintain powerful rate-making flexibility. Previous bridge toll increases in 1989, 1991 and 2002 increased bridge revenue 25%, 36% and 33%, respectively, with only small corresponding changes in traffic of +1%, -3% and -4.5%. A toll increase in fiscal 2009 increased revenue 14% and traffic fell 3%. The District's financial plan calls for a toll increase in 2013; however, the District's board is yet to take any action on the matter. Fitch considers the District's economic rate-making flexibility in conjunction with its formidable reserves. The District held $188 million in unrestricted cash and investments as of June 30, 2012 and had only $61 million of outstanding CP.
Bridge traffic was up 1.3% in fiscal 2012 while revenue was essentially up 2.1%. Fiscal 2012 ferry revenue was up 14.5% while ridership was up 8%. Bus revenue was up 3.7% while ridership was up 2.7% bucking recent declining trends.
Bridge traffic through February 2013 was down 1.3% from the same period in fiscal 2012. Bus patronage was down 1.9% while ferry patronage was up 4.4% from fiscal 2012. Year-to-date bridge revenue is down 1.16% from the same period in fiscal 2012 while bus and ferry revenues are up 5.5% and 6.2%, respectively. Overall year-to-date traffic and revenue figures are generally in line with the District's 2013 budget.
The Golden Gate Bridge Highway & Transportation District operates the Golden Gate Bridge, which provides a vehicular crossing from the city of San Francisco across the San Francisco Bay to Marin County and points north. Since 1969, when the California State Legislature expanded the dDistrict's transportation responsibilities, the District has also operated the Golden Gate Transit bus and ferry services. The bridge, the sole direct vehicle roadway connecting the North Bay counties to San Francisco, is an internationally known landmark with significant national and state interest in maintaining its aesthetic and structural integrity.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Rating Criteria for Infrastructure and Project Finance,' (July 12, 2012);
--'Rating Criteria for Toll Roads, Bridges, and Tunnels' - (Aug. 2, 2012).
Applicable Criteria and Related Research
Rating Criteria for Toll Roads, Bridges, and Tunnels
Rating Criteria for Infrastructure and Project Finance